Governor's teacher pension plan shocks school districts

Governor Jerry Brown talks with the editorial board about running for his fourth term, Friday May 16, 2014, in San Francisco, Calif.

Governor Jerry Brown talks with the editorial board about running for his fourth term, Friday May 16, 2014, in San Francisco, Calif.

Photo: Lacy Atkins, SFC

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Eighth grade teacher Kristie Ellis works closely with student Eric Pa, 14, at Presidio Middle School on Wednesday April 23, 2014 in San Francisco, Calif.

Eighth grade teacher Kristie Ellis works closely with student Eric Pa, 14, at Presidio Middle School on Wednesday April 23, 2014 in San Francisco, Calif.

Photo: Mike Kepka, The Chronicle

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Both traditional and special needs students work together in a 6th grade math and science class at Presidio Middle School on Wednesday April 23, 2014 in San Francisco, Calif.

Both traditional and special needs students work together in a 6th grade math and science class at Presidio Middle School on Wednesday April 23, 2014 in San Francisco, Calif.

Photo: Mike Kepka, The Chronicle

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Scott Booth and Grey Todd teach a 6th grade math and science class at Presidio Middle School where both traditional and special needs students work together on Wednesday April 23, 2014 in San Francisco, Calif.

Scott Booth and Grey Todd teach a 6th grade math and science class at Presidio Middle School where both traditional and special needs students work together on Wednesday April 23, 2014 in San Francisco, Calif.

Photo: Mike Kepka, The Chronicle

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Both traditional and special needs students work together in a 6th grade math and science class at Presidio Middle School on Wednesday April 23, 2014 in San Francisco, Calif.

Both traditional and special needs students work together in a 6th grade math and science class at Presidio Middle School on Wednesday April 23, 2014 in San Francisco, Calif.

Photo: Mike Kepka, The Chronicle

Governor's teacher pension plan shocks school districts

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When local school district officials pulled out their calculators and started crunching the numbers based on the governor's new plan to shore up the state's teacher pension fund, their jaws hit the floor.

The proposal, part of Gov. Jerry Brown's May budget revision, would more than double the 8.25 percent of payroll that districts now pay toward teacher retirement each year. Phased in over seven years, districts would end up paying 19.1 percent.

For San Francisco, that would mean spending $34 million each year above the current $25.8 million for teacher pensions, district officials said Friday.

More immediately, it would require the district to find $4 million to cover the increase the governor wants for the 2014-15 school year.

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"Quite frankly, we are stunned," said district Superintendent Richard Carranza, who took his case to state legislators this week. "We agree that the pension shortfall is a problem that has to be fixed, but the burden is being smacked down on school districts at the last minute just as we are finalizing budgets created with extensive community input and hours of thoughtful planning around how to serve our most disadvantaged students."

The district, like many others, is also in contract negotiations with teachers, who expect a raise in this postrecession era. The United Educators of San Francisco has asked for a 21 percent raise over three years.

"This will take a huge portion of the very same revenues school districts are counting on to provide services for our students and salary increases for our teachers," Carranza said. "It undermines what the governor said just six months ago he intended to do, which was to increase funding for underserved students."

In Oakland, district officials said the first year of the governor's plan would cost the district an extra $1.8 million and at full implementation, $15.6 million.

Yet no one disputes the urgent need to backfill the California State Teachers' Retirement System, or CalSTRS.

$74 billion shortfall

The pension plan is underfunded by $74 billion with only two-thirds of the assets it needs to cover what it owes the 868,000 current, former and retired teachers over the next few decades.

This debt is arguably "the state's most difficult challenge," according to the Legislative Analyst's Office. It will take an extra $5 billion a year for the next 30 years to cover the cost.

The state, districts and teachers all pay into the fund. The state currently pays 3 percent of payroll costs, teachers pay 8 percent and districts pay 8.25 percent.

The governor's proposal would require districts to pick up 70 percent of the additional tab to pay down the debt. The state would cover 20 percent of the increase, and teachers 10 percent.

The law limits how much teachers pay. So the rest comes down to districts and the state.

"We don't think there's any one right way to split this up," said Ryan Miller, the teachers pension fund expert in the Legislative Analyst's Office. "In broad terms, between the last budget and this budget, schools are expected to have a substantial increase in funding. This would be a new cost."

Districts, however, were very much anticipating that extra cash, much of which the state tied to services for English learners and low-income students.

Unexpected hurdle

The governor's pension fund proposal throws a big, last-minute wrench into district plans to spend the money, local administrators said.

"Gov. Brown is expecting school district budgets to pay out a multibillion-dollar bill for the state's unfunded pension liabilities as soon as next year and every year after for the foreseeable future," Carranza said.

There is some debate as to whether Proposition 98's minimum-funding guarantee for schools would require the state to increase education funding to cover the required payments to the teachers pension fund. Some legal experts say yes, others say no.

If the Legislature adopts the governor's pension proposal, there probably will be a lawsuit to decide.

In the meantime, fiscal analysts say delaying action on the retirement fund will only cost more in the long run. Without any action, the debt to the pension fund is growing by about $22 million each day and the fund would run out of money by 2046.

The San Francisco superintendent has asked legislators to help districts offset the retirement system cost, especially for the next school year, and perhaps extend the plan to eliminate the unfunded pension costs over 45 years rather than 30.

"We recognize that there are no easy fixes to the unfunded CalSTRS liability, and understand that increases in employer contributions are a necessary part of the solution," he wrote in a letter to Assemblyman Rob Bonta, D-Alameda, chairman of the Public Employees, Retirement and Social Security Committee. "We have committed to changing the trajectory for many students and families in our city. Your willingness to modify the CalSTRS proposal is critical to supporting our ability to make this sorely needed and anticipated change."

Who absorbs retirement costs

Under the governor's plan to shore up the CalSTRS teacher pension plan, the state, districts and teachers would all cover increased costs, but not equally.